Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 3041 IND Public Disclosure Authorized (Small and Medium Industrial Enterprise Project) between Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and USAHA PEMBIAYAAN PEMBANGUNAN INDONESIA Dated June 1, 1989 LOAN NUMBER 3041 IND Public Disclosure Authorized UPPINDO PROJECT AGREEMENT AGREEMENT, dated June 1, 1989, between the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and USAHA PEMBIAYAAN PEMBANGUNAN INDONESIA (UPPINDO). WHEREAS (A) by the Loan Agreement of even date herewith between the Republic of Indonesia (the Borrower) and the Bank, the Bank has agreed to lend to the Borrower an amount in various currencies equivalent to one hundred million dollars ($100,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that UPPINDO agree to undertake such obligations toward the Bank as are set forth in this Agreement; and (B) by an on-lending agreement to be entered into between BI and UPPINDO, part of the proceeds of the Loan provided for under the Loan Agreement will be made available to UPPINDO on terms and conditions set forth in the UPPINDO On-lending Agreement; and WHEREAS UPPINDO, in consideration of the Bank s entering into the Loan Agreement with the Borrower, have agreed to undertake the
obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement, the Preamble to this Agreement and in the General Conditions as so defined have the respective meanings therein set forth. ARTICLE II Execution of the Project; Management and Operations of the Participating Financial Institutions Section 2.01. UPPINDO declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out Part A of the Project and conduct its operations and affairs, in accordance with sound administrative, financial, economic and managerial standards and practices, with qualified and experienced management and staffing in adequate number and qualifications, and in accordance with its Charter and shall provide, promptly as needed, the funds, facilities, services and other resources required for Part A of the Project. Section 2.02. (a) UPPINDO undertakes that, unless the Bank shall otherwise agree, Sub-loans shall be made in accordance with the procedures and on the terms and conditions set forth or referred to in the Schedule to this Agreement. (b) UPPINDO shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Bank and UPPINDO; (ii) comply with its obligations under this Agreement and the UPPINDO On-lending Agreement; and (iii) achieve the purposes of the Project. Section 2.03. UPPINDO shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition) in respect of Part A of the Project. Section 2.04. UPPINDO shall duly perform all its obligations under the UPPINDO On-lending Agreement. Except as the Bank shall otherwise agree, UPPINDO shall not take or concur in any action which would have the effect of assigning, amending, abrogating or waiving the UPPINDO On-lending Agreement or any provision thereof. Section 2.05. (a) UPPINDO shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under the UPPINDO On-lending Agreement and other matters relating to the purposes of the Loan. (b) UPPINDO shall furnish to the Bank all such information as the Bank shall reasonably request concerning the expenditures of the proceeds of the Sub-loans, the Investment Enterprises, the Investment Projects and the administration, operations and financial condition of UPPINDO. (c) UPPINDO shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by UPPINDO of its respective obligations under this Agreement and under the UPPINDO On-lending Agreement. Section 2.06. Except as the Bank and UPPINDO shall otherwise
agree, UPPINDO shall: (i) not sell, lease, transfer or otherwise dispose of any of its property or assets, except in the ordinary course of business; and (ii) take all action necessary to maintain its corporate existence and right to carry on its operations and to acquire, maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of its business. Section 2.07. Except as the Bank shall otherwise agree, UPPINDO shall use the proceeds accrued to them from the repayment of the principal of Sub-loans for further relending to Investment Enterprises for Sub-loans on the terms and conditions set forth in the Schedule to this Agreement (except for those relating to the Bank s approval of Sub-loans) and with due consideration to their obligation under the UPPINDO On-lending Agreement. ARTICLE III Financial Covenants Section 3.01. (a) UPPINDO shall maintain procedures and records adequate to monitor and record the progress of the Project and of each Investment Project (including its cost and the benefits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of UPPINDO. (b) UPPINDO shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank, as soon as available but in any case not later than nine months after the end of each such year: (A) certified copies of its financial statements for such year as so audited, and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, UPPINDO shall: (i) maintain, in accordance with paragraph (a) of this Section, separate records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank s representatives to examine such records; and (iv) ensure that such separate accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report thereof contains, in respect of such separate accounts, a separate opinion by said auditors as to whether the proceeds of the Loan withdrawn in respect of such expendi-
tures were used for the purposes for which they were provided. Section 3.02. UPPINDO shall, in its term lending operations, take such steps as shall be necessary to cover itself against foreign exchange risk. Section 3.03. UPPINDO shall, commencing on its fiscal year 1989 and thereafter, maintain a collection ratio of not less than 80% on all Sub-loans and other lending operations made by UPPINDO under Prior Loan Agreements. For purposes of this Section the terms "collection ratio" means total cash collection in the last twelve month period as a percentage of amounts past due at the start of the period plus billings of current amounts due, net of amounts rescheduled; and "Prior Loan Agreements" mean the Loan Agreements entered into between the Republic of Indonesia and the Bank of even date herewith (Loan No. 3040-IND), and August 24, 1988 (Loan No. 2979-IND). Section 3.04. (a) Except as the Bank shall otherwise agree, UPPINDO commencing on its fiscal year 1989 and thereafter, shall not incur any debt, if after the incurrence of such debt its ratio of debt to equity shall be greater than 7 to 1. (b) For purposes of this Section: (i) The term "debt" means any indebtedness of UPPINDO maturing by its terms more than one year after the date on which it is originally incurred. (ii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (iii) The term "equity" means the sum of the total unimpaired paid-up capital, subordinated loans under terms and conditions satisfactory to the Bank, retained earnings and reserves of UPPINDO not allocated to cover its specific liabilities. (iv) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Borrower, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Bank. Section 3.05. In order to monitor and evaluate semi-annually the performance criteria set forth in Sections 3.03 and 3.04 of this Agreement, UPPINDO shall maintain adequate procedures and records, satisfactory to the Bank. ARTICLE IV Effective Date; Termination Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 4.02. This Agreement and all obligations of the Bank and of UPPINDO thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify UPPINDO thereof.
Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 5.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party s address hereinafter specified or at such other addresses as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. Telex: 440098 (ITT) 248423 (RCA) or 64145 (WUI) For UPPINDO: Usaha Pembiayaan Pembangunan Indonesia Jl. H.R. Rasuna Said Kav C-19 Jakarta, Indonesia Telex: 46343 UPPINDO IA Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of UPPINDO or by UPPINDO on behalf of the Borrower under the Loan Agreement, may be taken or executed by its President Director, or by such other person or persons as their Board of Managing Directors shall designate in writing, and UPPINDO shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 5.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Attila Karaosmanoglu Regional Vice President Asia
USAHA PEMBIAYAAN PEMBANGUNAN INDONESIA By /s/ Abdul Rachman Ramly Authorized Representative SCHEDULE Terms and Conditions of Sub-loans 1. Sub-loans shall have a maximum repayment period of 12 years, including grace period, if any, and interest rate at the prevailing market rate for similar lending operations in Indonesia. 2. No expenditures for goods, civil works or services required for an Investment Project shall be eligible for financing out of the proceeds of the Loan unless: (a) the Sub-loan for such Investment Project shall have been approved by the Bank and such expenditures shall have been made not earlier than ninety days prior to the date on which the Bank shall have received the application and information required under paragraph 4 (a) of this Schedule in respect of such Sub-loan; or (b) the Sub-loan for such Investment Project shall have been a free-limit Sub-loan for which the Bank has authorized withdrawals from the Loan Account and such expenditures shall have been made not earlier than ninety days prior to the date on which the Bank shall have received the request and information required under paragraph 4 (b) of this Schedule in respect of such freelimit Sub-loan. Except as the Bank shall otherwise agree, for the purposes of the Loan Agreement and this Agreement, a free-limit Sub-loan shall represent the investment portion of the Sub-loan being financed out of the proceeds of the Loan which shall not exceed, when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Loan for investments under the same Investment Project, $210,000 equivalent; provided, further, that the first two Sub-loans made or proposed to be made by UPPINDO, regardless of their amounts, shall require the Bank s approval. 3. Except as the Bank shall otherwise agree, UPPINDO shall not make any Sub-loan in an amount: (a) below the equivalent of $56,000 and (b) exceeding the equivalent of $525,000, or in an amount which would exceed such limit when added to the amount of all other Sub-loans made for the same Investment Project out of the proceeds of the Loan; provided, however, that the amount representing the permanent working capital shall not exceed 40% of the Sub-loan. 4. (a) When presenting a Sub-loan (other than a free-limit Subloan) to the Bank for approval, UPPINDO shall furnish to the Bank an application, in a form satisfactory to the Bank, together with: (i) a description of the Investment Enterprise and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan; (iii) an environmental impact analysis of the Investment Project together with a survey to identify existing environmental impact and proposed solutions to ameliorate such impact; and (iv) such other information as the Bank shall reasonably request. (b) Each request by UPPINDO for authorization to make withdrawals from the Loan Account in respect of a free-limit Subloan shall contain: (i) a summary description of the Investment Enterprise and the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; and (ii) the terms and conditions of the Sub-loan,
including the schedule of amortization therefor. (c) Applications and requests made pursuant to the provisions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Bank on or before June 30, 1994. 5. Sub-loans shall be made on terms whereby UPPINDO shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank and UPPINDO, including, in the case of any Sub-loan the right to: (a) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial, economic, managerial and environmental standards and practices, and to maintain adequate records; (b) require that: (i) the goods, civil works and services to be financed out of the proceeds of the Loan shall be purchased at a reasonable price, account being taken also of other relevant factors such as, in the case of goods, time of delivery, reliability and availability of maintenance facilities and spare parts therefor, and, in the case of civil works and services, of their quality and the competence of the parties rendering them; and (ii) such goods, civil works and services shall be used exclusively in the carrying out of the Investment Project; (c) inspect, by itself or jointly with representatives of the Bank, if the Bank shall so request, such goods, works, plants and constructions and installations, as the case may be, included in the Investment Project, the operation thereof, and any relevant records and documents; (d) require that: (i) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (e) obtain all such information as the Bank or UPPINDO shall reasonably request relating to the foregoing and to the administration, operations and financial conditions of the Investment Enterprise and to the benefits to be derived from the Investment Project; and (f) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Loan upon failure by such Investment Enterprise to perform its obligations under its contract with UPPINDO. 6. Except as the Bank shall otherwise agree, to qualify for obtaining a Sub-loan, an Investment Enterprise shall demonstrate: (a) that it is engaged in the manufacturing industry subsector and/or the agro-based industry subsector, or related services therein, (including transportation and cold storage); (b) that it employs between 20 and 150 full-time employees; (c) that it has operating assets (excluding land and inventories) of less than $500,000 equivalent; and (d) that the Investment Project for which the Sub-loan is being requested shall: (i) be financed, by not less than 20% of its total
cost, from the own resources of such Investment Enterprise; (ii) have a financial rate of return of not less than UPPINDO s three months certificate of deposit rate or the average of the other Participating Financial Institutions three-month deposit rate, whichever is lesser; and (iii) satisfy environmental guidelines and regulations existing in Indonesia. Provided, however, that the requirements under paragraph 5 (d) (ii) of this Schedule shall not apply to Investment Projects financed by a free-limit Sub-loan. 7. Without any limitation to the provisions of paragraph 4 of this Schedule, in those cases where the Investment Enterprise has been provided by LPPI with technical assistance under Part B (i) of the Project, and UPPINDO is financing the Investment Project resulting from such technical assistance, UPPINDO shall, at the request of LPPI, enter into an agreement with the Investment Enterprise to withhold from the proceeds of the Sub-loan the cost of such technical assistance for purposes of making it available to LPPI. 8. Without any limitation to the provisions of paragraph 4 of this Schedule, UPPINDO undertakes to avail itself in the processing of Sub-loan approval and authorization application of the technical assistance to be provided by the Appraisal Advisor. 9. Without any limitation to the provisions of Section 2.05 (b) of this Agreement, UPPINDO shall provide to the Appraisal Advisor all such information as the Appraisal Advisor shall reasonably request concerning the Sub-loans, the Investment Enterprises and the Investment Projects.